Search results

AbstractWhy do states enter into treaties? In literature on the investment treaty regime, the dominant answer is that investment treaties provide credible commitments to foreign investors. This narrative provides valuable insights but cannot account for the historical origins of the treaties, where drafters explicitly decided to exclude "strong" dispute settlement provisions. Unlike modern-day investment treaties, the early investment treaty regime did not allow investors to file claims against host states through investor-state dispute settlement (ISDS). Using historical evidence from three major capital-exporting states—the United States, the United Kingdom, and Germany—the article shows that this was a conscious design choice. Rather than providing formal dispute settlement, sanctions, and penalties to make credible commitments, Western states intended investment treaties to serve as salient focal points for the informal resolution of investment disputes. The substantive obligations were expected to fulfil their coordinating role without the shadow of judicialized dispute settlement. The argument is not just of historical interest but has broader implications for literature on international economic law dominated by the credible commitment narrative, as well as the current political backlash against ISDS.

Using the international investment regime as its point of departure, the article applies notions of bounded rationality to the study of economic diplomacy. Through a multimethod approach, it shows that developing countries often ignored the risks of bilateral investment treaties (bits) until they themselves became subject to an investment treaty claim. Thus the behavior of developing country governments with regard to the international investment regime is consistent with that routinely observed for individuals in experiments and field studies: they tend to ignore high-impact, low-probability risks if they cannot bring specific "vivid" instances to mind. Adapted from the source document.